Mark Lackey talks with Pat Bolland about the rising use of zinc in developing economies as well as in fertilizer against a backdrop of shrinking mine suppliers and inventories on Straight Talk’s Noon-Hour, Sun News Network – video available online now.
Mark's stock picks in zinc are Zazu Metals Corporation (TSX: ZAZ), Vendetta Mining Corp. (TSXV: VTT) and Foran Mining Corporation (TSXV: FOM).
The price of zinc today is trading at US$0.92 per pound on the NYMEX. We expect that price of zinc will close this year at US$1.20/lb and will increase to US$1.40/lb by the end of 2015 and reach $US 1.75/lb by the end of 2016.
We are projecting that the demand for zinc will rise in the next two years due to an increase in worldwide auto production and an increase in residential and non-residential construction on a global basis. In addition major infrastructure projects in China, India, Japan, Indonesia, Brazil and Turkey have begun this year and these projects are zinc intensive. Zinc is also showing more demand growth in recent years as an additive to fertilizers since many farms are zinc deficient; adding a zinc fertilizer has increased crop yields especially in Asia. The addition of zinc to the food chain has greatly reduced stomach disorders especially in Asia, South America, and Africa. All of these factors should help result in stronger demand for zinc in the next two years.
The movement of individuals from rural communities to cities in China (20 million people per year) and similarly in India, Brazil, and Indonesia, will result in a continuing increase in the intensity of zinc use. The recent studies indicate that as economies develop more metal intensive investments are made and more metal intensive goods are consumed. Thus intensity of zinc use will rise until economies reach a mature level of per capita income and at present only about 15 industrialized countries are at that per capita level of income. China, India, Brazil, Turkey, Indonesia and Mexico are all experiencing rapid growth in per capita incomes but are still a long way from the mature income levels -- which means that the intensity of zinc use in those countries will continue to increase for the next ten years. This is an important issue as the modest slowdown in the rate of economic growth in these countries has caused some analysts to lower their demand forecasts for zinc. We expect that the rising intensity of zinc per unit of GDP will more than offset the slightly lower real GDP growth rates.
We are also forecasting a decline in mined zinc of around 1.5 million tonnes in the next three years as ten zinc mines will close during that time period and this will remove about 10% of the global zinc production out of the market. The most notable closures include the Brunswick mine in New Brunswick, the Century mine in Australia, and the Lisheen mine in Ireland. Zinc prices could go higher than we are expecting if China restricts the export of super high zinc which they have recently indicated could happen in the next two years which would tighten the zinc market even further.
In addition zinc inventories at present are at an 18-month low and we expect those inventories to continue to decline over the next two years as the rate of growth in demand should exceed the rate of growth in supply.
Companies that we follow in this sector that are not CHF clients are:
Foran Mining Corporation (TSXV: FOM), Tosca Mining Corporation (TSXV: TSQ), Vendetta Mining Corp. (TSXV: VTT) and Zazu Metals Corporation (TSX: ZAZ).